Misspending your Youth?

Why do students take full advantage of student finance without fully realising the consequences?, asks Deirdre Ní Annracháin

The financial decisions that students make during their college years can have crippling effects later on. Nearly everyone who takes out a student loan or a credit card knows that the money does not come for free.

Yet, sometimes a feeling of youthful immortality can kick-in and create the illusion that tomorrow (or the date you have to start paying back that loan) will always stay in the future. For too many, this illusion is sharply shattered by a demanding (and in some cases threatening) letter through the letterbox from the bank.

But how do students get themselves into the position where they are forced to borrow so much money? And, more pressingly, how do they get themselves out?

While earning an undergraduate degree in Ireland is purportedly free, students and their families are painfully aware of the huge costs that can be involved.

A recent Bank of Ireland survey estimated the cost of a third level education (essentially 4 years at undergraduate level) at €38,614, equaling €9,653 per year.

For the average student, living away from home and earning, what is at best, a modest income from a part-time job, these costs are impossible to cover without some sort of outside assistance.

While the recent years of prosperity mean that many parents are in a position to entirely support their college-going children, those who do not have such a luxury are forced to turn to the local bank manager and take out a student loan.

The amount which students borrow varies wildly. While the lucky ones find themselves only repaying the cost of that J1 they took in second year, or the car they bought in first year, it is not difficult to come out of an undergraduate degree in tens of thousands of euro of debt.

There are two prevailing reasons for this high level of debt. Firstly, while all Irish citizens are entitled to a free undergraduate education, if a student repeats a year he or she must personally bear the costs.
So, students who fail a year and are forced to repeat, or those who switch courses are faced with fees of anything up to €9,000 per year.

Those who do not repeat are still expected to pay registration fees, the cost of which has been recently increased. When added to the average cost of living away from home in rented accommodation (€3,500 per annum, according the Bank of Ireland study), college years art not as ‘free’ as they can appear.

The second main cause of student debts can be attributed to the high expectations students have regarding their quality of life.

Frequent (and expensive) nights on the town are the norm for most students, as are elaborate summers abroad. Each summer, there is a diaspora of Irish students to San Diego, Vancouver and the railroads of Eastern Europe, generally paid for on credit.

These holidays, which usually last the majority of the summer, can cost thousands in flights, accommodation and general living costs, but students are hugely unwilling to forgo them in order to work at home in the local shop or pub.

No matter how small the loan or credit card debt, the day comes when it must be repaid. For the more organised of students, repayments can start while still in college by working in part-time or summer jobs.
It must be noted, however, that the advantages of working during the term are debatable; while the financial strain is somewhat eased, academic work can easily be let fall by the wayside.

For most students though, the repay-day comes after graduation when it is time to get a ‘real’ job. At this juncture, graduates are already being saddled with the extra costs of having to pay taxes, no longer qualifying for student discounts.

The repayment of a student loan, which can often be a relic from three or four years previously, suddenly looms as an extra inescapable burden on the financial horizon.

For many graduates, the years of carefree, college existence which their loan afforded them become an all too distant memory as the hard grind of nine-to-five kicks in and the real world begins.

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Using two UCD students as a case studies, Deirdre Ní Annracháin examines the financial worries that are seemingly more and more implicit in student life.

Recent Engineering graduate, Mark Berney completed his degree last May, and he has realised that the issue of financial management is of crucial importance as he leaves the student bubble and joins the real world.
Berney’s accounts are currently €8,500 in debt, which he borrowed from the bank in a student loan and will begin paying back in a number of weeks.

Unlike Murphy, Mark sought a loan not for fee payment, but for general living costs. “I took out the loan at the start of this year, to pay for general living expenses in college and for a J1 that I went on this summer. I live away from home, so that is an added expense”.

In addition to his loan, Berney found that he had to take on a part-time job to subsidise his daily expenses. “I worked at the weekends during the year so the amount I had to borrow wasn’t as much as it could have been”.

Admitting he is familiar to the loan process, Berney explains that “this isn’t my first loan. I’ve taken out loans every year since starting college, but I paid them back each summer by working for the full three months.”

With this system, Mark hopes that the debt will not have to be paid back in a large, devastating chunk.

“I have to pay it back in monthly installments so I have a bit of time between repayments. I’m just back from spending the summer away so I’ve just started looking for a full-time job. The sooner I find one the easier it will be to keep on top of my repayments.”

However, even when students are organised and prepared, the stress and worries brought on by payment dates can have a major effect.

Having debt on your back automatically puts you at a disadvantage going out into the world, and it puts extra pressure on you to find a job that pays enough.

Does Mark still feel this burden? “Yes, definitely. Having debt on your back automatically puts you at a disadvantage going out into the world, and it puts extra pressure on you to find a job that pays enough.”
Since he has graduated, Berney feels that his accounts are now taken more seriously by bank officials and this has become a factor in his concerns.

“Before, if I felt that I couldn’t pay back my loan I could just extend it or take out another one. Now I don’t qualify for student loans, so I don’t have any choice but to pay it back.”

Berney doesn’t have any regrets and views the loans he signed for as necessary to continuing his life with UCD. He does however, advise students to appreciate the gravity of such a transaction and understand that it’s not free money you receive. Unfortunately, it will come with a price.

Like many students, second year Medicine student, Laura Murphy’s main worries are the toll of her education bills. However, unlike most Irish students enjoying ‘free fees’, Murphy explains that she currently has a loan from the bank for €25,000.

Undoubtedly, this is a burdensome and arduous debt, in particular, for a student in a full-time, strenuous course.

But how exactly can such a situation arise where a student is in so much debt at such a young age?
For Murphy, it was a sea change in academic direction that launched her into difficulty. “I did two years of Science in Trinity College before repeating my Leaving Cert and starting Medicine in UCD. As I had already been in college for two years, I have to pay the tuition fees for first and second year Medicine myself which are €8,000 per year”.

Murphy’s chosen course is also one the most expensive in terms of tuition fees. However, Dublin, being the expensive city that it is, living costs was also a rising burden for the medicine student.

“I also needed to get the loan to pay for my day to day living – rent, registration fees and things like that.”
To avoid high interest payments, Murphy has to begin paying the €25,000 back before she graduates. The only way she feels she can do this is to begin her payments during her year as a medical intern.

A necessary component to her studies, Murphy’s internship involves “a lot of hours, but the pay is good. So I’m hoping I’ll earn enough then to pay back at least most of what I owe”. However, she is aware of the pressure she will be under working full time in a hospital.

At this stage I’m so far in debt that it’s stopped feeling real

Surely, the ominous sense of debt must have an impact on the lifestyle that goes kith and kin with being a student?

“At this stage I’m so far in debt that it’s stopped feeling real. I went on a J1 to Hawaii this summer, which was expensive. I worked before I left to try get some money together, but the amount I saved didn’t last very long.”

“I’m just trying not to get into a situation where I have to borrow more. I don’t have time to work that much during college because I have a very full timetable, which doesn’t help. I won’t be going away next summer though, because I really will have to work the entire time to make a bit of money for the following year.”
Murphy advises that students should avoid getting into too much debt, resulting in a situation where repayment will not be possible.

“Just try to budget in as much detail as you can, and try to pay back whatever you borrow as quickly as possible so it doesn’t end up mounting up on you.”